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Property Plant and Equipment
Property Plant and Equipment
Property Plant and Equipment
Definition/Nature: Plant assets or Fixed Assets or Property, plant and equipment– are
tangible in nature, used in the operations of the business and not held for sale in the
ordinary course of the business.
Initial Measurement: The initial cost of a plant asset such as equipment includes all
expenditures necessary to get it in place and ready for use. Cost includes the purchase
price, import duties , sales tax, transportation charges, insurance, and installation costs.
Trade discounts are to be deducted from the purchase price. Capital expenditures are
costs that prolong the usefulness of the asset and are therefore debited to the asset
account. Ex. Repairs and maintenance, betterments that prolong the life and usefulness
of the asset. Revenue expenditures are expenditures that benefit only the current period
and are chargeable to expense accounts.
The cost of constructing a building includes the fees paid to architects and engineers for
plans and supervision, insurance incurred during construction, and all other necessary
expenditures applicable to the project. Interest incurred on money borrowed for the
construction will be charged to Building account.
The cost of land includes not only the negotiated price but also broker’s commissions,
title fees, surveying fees, and other expenditures connected with the securing the title. If
delinquent real taxes are assumed by the buyer, they are also chargeable to the land
account. The cost of leveling, razing down or removal of any unwanted building , less
any salvage recovered, is chargeable to land.
For land improvements, are depreciable site enhancements that are not permanent,
including driveways, parking lots, private roads, fencing and landscaping.
Natural resources include timber tracts, mineral deposits, and oil and gas deposits.